Explore this blog post for detailed information on the new postponed deadline, estimated tax payments, Special IRA and 401K distributions, and other valuable tax insights.

Deadline Postponed

Hurricane Beryl has caused significant damage in 67 Texas counties. The list includes Harris County and Montgomery County (for more counties click here).

In response, the IRS has announced it will postpone various tax filing and payment deadlines that occurred from July 5, 2024, through February 3, 2025.

This means that if you filed an extension for your 2023 individual or business tax return, now you have until February 3^rd 2025 instead of September 16^th or October 15^th, 2024 to file your 2023 return.

Estimated Tax Payments

Keep in mind that payments on these returns are not eligible for the extra time because they were due last spring before the hurricane occurred. But the quarterly estimated income tax payments due on Sept. 16, 2024, and Jan. 15, 2025 do qualify for the February 3^rd 2025 deadline.

There is nothing you need to do to get this hurricane relief if your IRS address of record is located in the disaster area.

Claiming The Losses

And if you suffered uninsured or unreimbursed hurricane losses, you can choose to claim them on either the 2024 return or on the 2023 return. You have until Oct. 15, 2025 to make the election. If you have already filed your 2023 tax return, you can file a 2023 amendment to claim the hurricane Beryl losses.

No 10% Penalty for Special IRA and 401K Distributions

In addition, you can take money out from your IRA or 401K without incurring the 10% early penalty withdrawal if you are younger than 59 ½. And you can spread the income over three years, instead of reporting the entire distribution on your 2024 tax return.

Maximum Distribution Limit

1.  Qualified disaster recovery distributions are limited to $22,000 per disaster for any qualified individual (across all plans and IRAs).
2. Timing of distributions: The window to take a disaster recovery distribution opens on the first day of the incident period for that qualified disaster (July 5th) and closes 180 days after the latest of (1) the first day of the incident period (July 5th) or (2) the date of the disaster declaration (Jul 9, 2024) (https://www.fema.gov/disaster/4798);
3. Tax treatment: Qualified disaster recovery distributions will not be subject to the 10% penalty tax on early distributions. For individuals, federal income taxes will be assessed over a three-year period starting in the year the qualified individual receives the distribution, unless the qualified individual elects to be taxed in full in the year of receipt.
4. What does it mean for an individual to sustain an economic loss by reason of a qualified disaster (Beryl)?
   Examples of an economic loss include, but are not limited to:
   Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause,
   Loss related to displacement from the individual’s home, or
   Loss of livelihood due to temporary or permanent layoffs.

For more information about this tax relief you can click here.

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This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

The Shoebox Method Does Not Substantiate a Deduction

When it comes to substantiating business expense deductions, meticulous record-keeping is essential. You should not rely on what the Tax Court has aptly dubbed the “shoebox method.” Let’s explore what this method entails and why it falls short in the eyes of the court.

What Is the Shoebox Method?

The shoebox method involves collecting receipts, invoices, and other financial documents related to business expenses. Rather than organizing and categorizing these records, people simply toss them into a shoebox or similar container. When tax time arrives, they present this collection as evidence to support their deductions.

The Tax Court’s View

In a recent case, Carol A. Wright and others v. Commissioner, the Tax Court rejected the shoebox method. The court emphasized that taxpayers must substantiate deductions by keeping clear and organized records. The shoebox approach, with its jumbled mess of receipts, fails to meet this requirement.

The Balancing Act: Clear Evidence

To substantiate deductions successfully, you need more than a shoebox full of receipts. Instead, they must provide clear and organized evidence that directly ties each expense to their business activities. In the Wright case, the court found that thousands of individual receipts, without proper organization, were insufficient to prove the amounts claimed.

Takeaway

As taxpayers, we should heed the lesson from the Wright case. Proper record-keeping is not just a formality; it’s a critical part of supporting our deductions. Whether you’re a business owner, freelancer, or investor, invest the time to organize your financial records. Avoid the shoebox method, and instead, create a system that allows you to correlate receipts with specific expenses. Your tax position will be stronger, and you’ll avoid unnecessary disputes with the IRS.

Remember, the shoebox may be handy for storing old sneakers, but it won’t help you win a tax deduction battle!

You can check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

Please note that this blog post is for informational purposes only and does not constitute tax, legal or accounting advice.